EBA publishes methodology for the 2018 EU-wide stress test

The European Banking Authority (EBA) publishes today its final methodology for the 2018 EU-wide stress test, following a discussion with industry in summer 2017. The methodology covers all relevant risk areas and, for the first time, incorporates IFRS 9 accounting standards. The stress test exercise will be formally launched in January 2018 and the results to be published by 2 November 2018.

Similar to the 2016 exercise, the 2018 EU-wide stress test is primarily focused on the assessment of the impact of risk drivers on the solvency of banks. Banks are required to stress a common set of risks (credit risk – including securitisations – market risk and counterparty credit risk, operational risk – including conduct risk). In addition, banks are requested to project the effect of the scenarios on net interest income and to stress P&L and capital items not covered by other risk types. The methodology, in line with the 2016 approach, is based on constraints including a static balance sheet assumption but with adjustments to incorporate IFRS 9 implementation.

To give banks sufficient time to prepare for the 2018 exercise, the methodology is published well ahead of the formal launch, which will include relevant macroeconomic scenarios.